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Mortgage rates surged Monday after Moody’s Ratings downgraded the U.S.’s credit rating over concerns that “successive U.S. administrations” and Congress have failed to tackle the nation’s annual budget deficits and growing interest costs.
With Republicans poised to extend tax cuts implemented during the first Trump administration — and with mandatory spending on Social Security, Medicare and interest payments on U.S. debt also expected to rise — Moody’s downgraded the U.S.’s long-term issuer and senior unsecured ratings to Aa1 from Aaa.
“This one-notch downgrade on our 21-notch rating scale reflects the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns,” Moody’s analysts said.
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The downgrade represented “a major symbolic move” since the other major rating agencies had already stripped the U.S. of its top credit rating, analysts at Deutsche Bank said in a note to clients.
The announcement — made minutes before bond markets closed Friday — helped drive rates on 30-year fixed-rate mortgages up seven basis points Monday, to 6.99 percent, according to data tracked by Mortgage News Daily.
Yields on 10-year Treasury notes, a barometer for mortgage rates, briefly touched a high of 4.56 percent Monday, up 17 basis points from Friday’s low of 4.39 percent.
Appearing on NBC’s Meet the Press on Sunday, Treasury Secretary Scott Bessent dismissed the downgrade by Moody’s and other agencies as a “lagging indicator,” and pointed the finger of blame at the Biden administration.
“We didn’t get here in the past 100 days — it’s the Biden administration and the spending that we have seen over the past four years,” Bessent told NBC’s Kristen Welker. “We inherited a 6.7 percent deficit relative to GDP — the highest when we weren’t in a recession or not in a war — and we are determined to bring the spending down and grow the economy.”
Welker pointed out that the first Trump administration added $8 trillion to the nation’s debt, which economists attribute to 2017 tax cuts and a surge in spending during the pandemic.
Bessent objected that the Trump administration handled “the rescue portion of COVID” while the Biden administration was responsible for “the recovery portion.”
Moody’s analysts said U.S. debt, which hit $36.2 trillion last year, has been rising sharply for more than a decade, as federal spending increased and tax cuts brought in less revenue.
They noted that most federal spending — 73 percent in 2024 — is on mandatory entitlement programs like Social Security, Medicare and interest on the U.S. debt, which has soared to more than $1 trillion annually.
“Without adjustments to taxation and spending, we expect budget flexibility to remain limited, with mandatory spending, including interest expense, projected to rise to around 78 percent of total spending by 2035,” Moody’s analysts said.
If the 2017 Tax Cuts and Jobs Act is extended — as Trump and Congressional Republicans are pushing for — that would add around $4 trillion to the federal fiscal primary (excluding interest payments) deficit over the next decade, Moody’s analysts concluded.
Just back from a trip to the Mideast, Bessent claimed countries in the region are poised to invest trillions of dollars in the U.S.
“Who cares?” Bessent said of the Moody’s downgrade. “Qatar doesn’t, Saudi [Arabia] doesn’t, UAE doesn’t — they’re all pushing money in. They’ve made 10-year investment plans. This administration, we’re doing peace deals, trade deals and tax deals.”
Federal deficit as a percentage of GDP
Economist Stephen Moore — a Project 2025 author who Trump tried to appoint to the Federal Reserve’s governing board in 2019 — lashed out at Moody’s Ratings in a Fox Business op-ed Monday.
Although Moody’s was the last of the credit rating agencies to downgrade the U.S.’s credit rating, Moore called the timing of the downgrade “particularly suspicious,” coming “just as Congress is voting on the Trump tax cut.”
“What Moody’s and other credit-rating agencies still can’t understand is that tax cuts like Ronald Reagan’s in 1981 and Trump’s 2017 bill grow the economy and, over time, lower the debt burden as a share of the nation’s wealth,” Moore wrote. “More people working and less people on welfare is a great way to lower debt spending. If we can get the growth rate up to 3 percent — which President Trump is aiming for — the debt burden starts to shrink.”
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